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UK long-term borrowing costs dip from 28-year high after Starmer allies back PM – business live | Business
UK bond yields off the highs as cabinet ministers offer support
UK government borrowing costs are still elevated as noon approaches, but not quite as high as they were.
Bond yields have dipped back after Keir Starmer told the cabinet he was not resigning.
After that meeting, several cabinet ministers including Peter Kyle, the business secretary, Liz Kendall, the technology secretary, and housing secretary Steve Reed told reporters they were supporting Starmer.
The 30-year bond yield is now up 9 basis points at 5.76%, having hit a new 28-year high of 5.81% this morning (see earlier post).
Ten-year bond yields are off their earlier highs too – up almost 10bps at just below 5.1%, having hit 5.13% earlier today.
Key events
Stock market flotations ‘could be derailed’ by Labour leadership fight
Kalyeena Makortoff
A source at a second City bank has said everyone in the business and banking community wanted predictability.
They added that there had been “quite positive signals from the City” about chancellor Rachel Reeves’ plans to generate growth, “so for anything to be derailed at this point would be damaging”.
“The worst thing at the moment would be going through another messy leadership race,” they said, adding “we don’t want to see what we experienced with the previous [Tory] government” referring to the party’s rotating cast of prime ministers.
They added:
“If you’re planning for an IPO, for example, you need stability in the markets…There’s been talk of a number of IPOs coming down the track in the UK, and that gets derailed in situations like this.”
[an IPO, or ‘initial public offering’ is a way of floating on the stock market.]
US inflation jumps to 3.8% annually
Newsflash: inflation in the US has jumped, as the Iran war drives up costs.
US consumer prices rose by 3.8% in the year to April, and by 0.6% during last month alone, new data from the US Bureau of Labor Statistics shows.
Energy prices jumped by 3.8% in April alone, the report shows, and were up 17.9% on an annual basis, as Americans were hit by surging gasoline prices.
Food prices rose by 0.5% in the month, and by 3.2% over the year.
These price rises may drive up the economic impact of the Middle East conflict triggered by Donald Trump at the end of February, and could also make it harder for US central bankers to cut interest rates soon.
The UK’s share index of medium-sized companies has also had a bad day, so far.
The FTSE 250 index, which contains firms too small for the FTSE 100, is down 1.2% so far today, or -270 points at 22,536 points.
The FTSE 100, which has more of an international focus, is down 0.5%.
Jason Hollands, managing director at investing platform Bestinvest, says “domestically focused mid-cap stocks” are particularly exposed today, from fears over the Iran war and the UK’s political crisis.
Hollands explains:
“President Trump’s warning that the Iran ceasefire is on ‘massive life support’ has reignited inflation fears by sending Brent crude oil surging to $107 a barrel, raising concerns that energy-driven price pressures could persist for longer. The UK is particularly vulnerable to higher energy prices because it remains heavily reliant on imported energy, meaning any sustained rise in oil and gas costs quickly feeds through into inflation and economic growth concerns.
“At the same time, markets are becoming increasingly uneasy about instability within the Labour government, with Sir Keir Starmer’s position appearing increasingly precarious following the rout at last week’s local elections. The bond vigilantes are out in force, clearly worried that any leadership change within the governing party could herald a shift towards more radical economic policies, with greater borrowing or even higher taxes becoming more probable at a time when the public finances are already under intense scrutiny, growth is anaemic, and productivity is weak.
City consultancy Oxford Economics fears 5% 10-year gilt yields are here to stay.
Their chief UK economist Andrew Goodwin explains:
“The increase in UK government bond yields since the start of the Iran war has been greater than in most other advanced economies.”
“Markets clearly perceive the UK has a bigger inflation problem and that tighter monetary policy will be needed to limit second-round effects from the energy shock, while political uncertainty has added to pressures at the long end.”
Kalyeena Makortoff
Bank sources are playing down the impact of uncertainty over Starmer’s future, saying that while they wanted stability, they were agnostic about how Labour would get there.
A City source at a UK investment bank told the Guardian that while it was an “unwelcome distraction”, traders seemed “sanguine” about the Labour government turmoil, adding that this kind of instability was not unique to the UK and something they were increasingly used across Europe.
They said bankers believed Labour policies were “unlikely to be that radical” even with a change in leadership.
We are likely to see further gilt and sterling weakness in the coming days, predicts Kit Juckes, foreign exchange expert at French bank Société Générale.
One fear is that the shift of power from PM Starmer to any successor could play out slowly. The PM is resisting internal pressure to resign, for starters.
Greater Manchester Mayor Andy Burnham is the bookmakers’ favourite to replace him but confidence that he could win a by-election (in order to stand for PM) has been damaged by Labour’s poor performance in Local election. Angela Rayner, former Deputy Prime Minister, is still in Parliament but hasn‘t got as wide support as Burnham.
However it plays out, we are in for a period of uncertainty about future Labour policies. Increased spending is a given, and so are higher taxes, almost certainly including higher taxes on wealth and housing.
Layer that on top of geopolitical uncertainty, rising energy costs, and UK 2026 consensus GDP growth forecasts which have fallen from 1.1% at Christmas to 0.8% now, and there isn’t much to make anyone feel good about the pound.
UK bond yields off the highs as cabinet ministers offer support
UK government borrowing costs are still elevated as noon approaches, but not quite as high as they were.
Bond yields have dipped back after Keir Starmer told the cabinet he was not resigning.
After that meeting, several cabinet ministers including Peter Kyle, the business secretary, Liz Kendall, the technology secretary, and housing secretary Steve Reed told reporters they were supporting Starmer.
The 30-year bond yield is now up 9 basis points at 5.76%, having hit a new 28-year high of 5.81% this morning (see earlier post).
Ten-year bond yields are off their earlier highs too – up almost 10bps at just below 5.1%, having hit 5.13% earlier today.
Starmer isn’t the only world leader facing a growth slowdown either.
Over in Moscow, the economy ministry has lowered its estimates for gross domestic product (GDP) growth in 2026 to 0.4% from 1.3% and halved estimated growth in 2027 to 1.4% from 2.8%.
Kremlin spokesman Dmitry Peskov told reporters that president Vladimir Putin was closely involved in economic issues and that Russia could “talk confidently” of macroeconomic stability despite volatility in global markets driven by the conflict in the Middle East.
Peskov added (via Reuters):
“Thanks to the measures being implemented by our government, we can confidently speak about macroeconomic stability and promising plans to modestly, but steadily, increase economic growth rates year after year.”
EY: Global energy supply disruption to slow UK GDP growth
Whether or not Keir Starmer is replaced, the UK faces a major energy shock from the Iran war.
A new economic outlook released by consultancy EY predicts that UK growth will be hit hard by higher oil and gas prices this year.
EY’s modelling suggests that before the Middle East conflict, UK GDP was on track for 1.3% growth in 2026. However, that has now been lowered to 0.8%, in a scenario where the strait of Hormuz reopens by the middle of 2026
But if there is an escalation and the Strait remains closed until the end of 2026, UK GDP growth could fall to 0.3% this year, EY warns.
EY also predicts the UK unemployment rate will increase slightly to 5.8% by the end of 2026 as weaker growth impacts hiring levels, before falling back to 5.2% in 2028.
Lucy Smith, senior investment manager at Killik & Co, warns that UK bond yields could rise higher, as investors fear political change and a burst of extra government spending:
“Gilt yields continue to creep up as Starmer’s premiership appears to weaken. Right now, it is hard to say whether a swift and decisive swap to a new leader or a longer-term contest will generate more uncertainty, and by extension, higher borrowing costs. Either way, the mere prospect of change, in part driven by an underlying fear that we could return to an era of successive leadership changes, is enough for investors to lose confidence.
A change in Labour leadership will mean six prime ministers in seven years, a clear signal of political instability, which is precisely what bond investors seek to avoid. Expectations of a drift to the left wing of the Labour party, which could result in a tax-and-spend strategy, could well drive yields up further as the market questions the Government’s ability to pay back the debt in the long-term.”
Labour must offer more than ‘better managed decline’ on economy, MPs urge
Richard Partington
An influential group of MPs has said that Labour needs an urgent renewal of economic strategy to offer voters “more than better management of decline” before the next general election.
With Keir Starmer fighting to ward off a leadership challenge, the leading backbenchers from the soft-left Tribune group published a series of essays calling for bolder action to salvage its remaining time in power.
In a foreword by the former cabinet minister Louise Haigh, and Yuan Yang, a prominent figure from Labour’s 2024 intake, the MPs issued a thinly disguised attack on Starmer amid pressure on him to set out a timeline for his departure.
The MPs wrote:
“We do not present this as the final word. They are an invitation – to challenge assumptions, test ideas, and help build a broader coalition for economic renewal. Because the economic status quo is no longer defensible.”
“And if politics is to regain trust, it must offer more than better management of decline.”
30-year bond yield now over 5.8%, as Starmer says he’s not resigning
UK borrowing costs are hitting new highs during morning bond market trading.
The 30-year UK gilt yield has now nudged 5.81%, and is still trading above the 5.8% mark after Keir Starmer told his cabinet colleagues he is not leaving.
Our political editor Pippa Crerar reported a few minutes ago, on X:
BREAKING: Keir Starmer tells his cabinet this morning that he’s staying put.
“As I said yesterday, I take responsibility for these election results and I take responsibility for delivering the change we promised.
“The past 48 hours have been destabilising for government and that has a real economic cost for our country and for families.
“The Labour Party has a process for challenging a leader and that has not been triggered.
“The country expects us to get on with governing. That is what I am doing and what we must do as a Cabinet.”
Those economic costs are continuing to mount, with the 30-year bond yield now up 13bps (0.13 of a percentage point) at 5.803%.
That indicates investors remain deeply concerned about UK political turmoil.
XTB: Risk of UK bond market meltdown
The political turmoil in the UK has hit at a bad time for the bond market, points out Kathleen Brooks, research director at XTB.
That’s because the jump in oil prices is creating inflation risks, which pushes up government bond yields.
Brooks explains:
There is an upward bias for bond yields anyway, and the UK yields are facing a double whammy of an energy price spike and a political crisis. The risk is that we get a bond market meltdown in the UK in the coming days. If that happens, will it quiet the factions of the Labour party who have threatened to ignore the bond market, ditch fiscal rules and boost public spending even more?
In the past, Rachel Reeves has been seen as vital to the stability of the UK’s bond market because she introduced the ‘iron clad fiscal rules’ to bring down the UK’s debt levels and finance day-to-day spending with tax take.
If this is a drawn-out leadership battle, or if Starmer lays out a timetable to leave in the coming months, both Starmer and Reeves will be seen as lame ducks who have no control over the public purse. This would be a bad position for the UK to find itself in, especially since our last election was less than 2 years ago. Right now, it’s hard to see how the bond market can stabilize, and there could be further downside ahead.
Financial markets are pricing in a move to left under a new prime minister, reports Ruth Gregory, deputy chief UK economist at Capital Economics:
In short, a shift to the political left is likely to lead to looser fiscal policy, higher gilt yields and a lower pound than otherwise, but we doubt a new Prime Minister would be any more successful at boosting the economy’s medium-term growth rate.
With 10-year gilt yields up by 10bps this morning and the pound down by 0.4% against the euro, which comes after similar moves yesterday, this is already playing out in the financial markets.
The pound’s sell-off is gathering pace.
Sterling is now down almost one cent against the US dollar at $1.3511 (a one-week low).
The pound has also dropped against the euro, down half a eurocent to below €1.15 (a near three-week low).
The family of Shaun Burton, say they are “devastated” by the loss.
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Key events
In the opening half an hour against Cape Verde, Mikel Oyarzabal, the centre-forward, did not get a single touch.
Kyle Green gets in touch: “Your highlighting of Lalas and his absurdity is something that has prevented me from wanting to watch the coverage on Fox. While every channel has its pros and cons I just can’t.
“I’m 45 and probably the youngest of anyone who remembers him as a player instead of an opinionated insert insult here. As for the match this could be more competitive than it looks on paper Spain need a win the pressure is on them. Saudi Arabia could hold out for a draw and see what happens in their last match. “
News from the England camp, and it seems to be good news on Declan Rice.
“I’m ready and fit, raring to go. I was feeling a little bit of neural pain in my hamstring, which I was managing from after Christmas with Arsenal for a very long time. Obviously, not a lot of people would have known that. It was all behind-the-scenes stuff but it was a smart decision.
“In the end, that last 20 minutes is probably where you pick up the most, and it’s where you play a 70-minute match. But that last 20 is where you really feel your body going for it. And I think it was a smart decision because the last few days I felt really, really good.”
Alex Reid has penned today’s weekend special Football Daily.
Portugal v Uzbekistan on Tuesday enticingly pits the incredibly nice, incredibly 41-year-old-superstar-tolerant Roberto Martínez against Fabio Cannavaro, who’s won a Ballon d’Or as a player and the Chinese Super League as a coach. While the fixture following that game really does see the dream of Thomas Tuchel – in his first international job with England – taking on Queiroz, who is in charge of his ninth national side with Ghana.
The expected formations are 4-2-3-1 for Spain, and 5-3-2 for the Saudi Arabians.
The Saudi team features two Donis changes: Ali Lajami, a defender, and Nasser Al Dawsari, a midfielder, are preferred to Mohammed Abu Al Shamat and Mohamed Kanno. You may recall Salem Al Dawsari, the Saudi captain, as the man who scored the winner against Argentina.
An entertaining read, even for those of us who have just seen the clips.
In a conversation where his co-panelist is casually reminiscing about his days playing alongside Messi or exchanging shirts with Ronaldo Nazário at the World Cup, what exactly is Lalas going to talk about – coming on as a second-half substitute for Earnie Stewart in a friendly against Scotland in 1998? Helping the Kansas City Wizards finish last in the 1999 MLS Western Conference? Did Lalas enjoy an elite playing career? No. But does he do the background reading that could compensate for his relative lack of standing in a conversation with titans like Henry and Zlatan? Also no. But is he charming or funny or charismatic or otherwise magnetic on screen? Eh, no.
For the record, I once interviewed Alexi Lalas on the challenge of playing against Romario in the 1994 World Cup. He had this to say:
“He could kill you in so many different ways. If you remember from that World Cup, he scored so many types of goals. That ranged from solo adventures to an outside-of-the-right-foot half-volley off a corner kick. Romario was both the most difficult to play against and the best that I have faced.
“Roberto Baggio was doing his thing, but in terms of consistency and living up to the hype, he [Romario] was the best. As with all stars, there was a moment when the fans sit up in their seats, and that was a feeling I got with Romario. When it got close to him and the potential for his involvement in a play was there, everybody sat up in their seat. They knew that something spectacular would be happening.”
Saturday’s match reports here.
The Saudi Arabia coach, and Blackburn legend, Georgios Donis, spoke about the challenges facing his team: “Spain is not the same team when Yamal or Williams are on the bench.
“While they still have plenty of possession, they lack the individual one-on-one penetration when these two are missing. I’m not saying it’s a problem for Spain, but when those players are missing, they play in a different way. We saw this very clearly against Cape Verde.
“We are playing against one of the best teams in the world, and it’s very important that when you play against these kinds of teams, you should enjoy the experience and respect the opponent, but not too much.
“It is very hard for any team playing against Spain to have any time in possession. So what we must do is to be more in control of our movement and compact, and when the ball goes through the lines, be able to defend dynamically.
“It’s nice to see miracles in football, and we’ve seen favourites losing against underdogs. Of course, it’s great for Saudi football to have a great memory of the result against Argentina, but we aren’t drawing anything from that.
“I think we’ll feel more pressure in that [Cape Verde] game than we will against Spain.”
The Spain coach, Luis De La Fuente had this to say in his Saturday press conference: “This generation of footballers is highly competitive and really fired up… It’s going to be a completely different story,” he said at his pre-match press conference on Saturday. There is no drama or crisis. The bottom line is simply that we need to win tomorrow.”
Four changes for Spain: Lamine Yamal, Pedro Porro, Dani Olmo and Alex Baena also come into the side with Marcos Llorente, Fabian Ruiz, Ferran Torres and Gavi dropping out.
The teams – Lamine Yamal starts
Spain: Simon, Porro, Cubarsi, Laporte, Cucurella, Gonzalez, Rodri, Yamal, Olmo, Baena, Oyarzabal. Subs: Raya, Joan Garcia, Pubill, Grimaldo, Eric Garcia, Llorente, Merino, Torres, Fabian, Gavi, Pino, Williams, Zubimendi, Munoz, Iglesias.
Saudi Arabia: Al Owais, Abdulhamid, Tambakti, Lajami, Al Amri, Al Harbi, Nasser Al Dawsari, Al Khaibari, Al Juwayr, Al Buraikan, Salem Al Dawsari. Subs: Al Aqidi, Al Kassar, Majrashi, Yahya, Al Shehri, Al Boushal, Kadesh, Al Johani, Al Ghannam, Al Hajji, Al Hamdan, Mandash, Kanno, Thakri, Abu Al Shamat.
Referee: Raphael Claus (Brazil)
Perhaps one of the Saudi -players can write themselves into this high-grade selection?
Perhaps it can be their goalkeeper.
Madrid screening of Spain v Saudi Arabia cancelled due to heat
The public screening of Spain’s World Cup match against Saudi Arabia in Madrid on Sunday has been cancelled because of extreme heat forecast for the Spanish capital, officials said.
The match, due to kick off at 6pm local time on Sunday, had been scheduled to be shown on a giant screen installed by the Spanish football federation (RFEF) at a fan zone in Plaza de Colón in central Madrid.
Madrid city council and the federation decided to cancel the screening after national weather agency AEMET issued an orange heat warning – the second-highest level – for the Madrid region, with temperatures forecast to reach 40C.
“The decision has been taken with the aim of protecting the health of attendees, event staff and support services involved in the event,” Madrid city hall said in a statement, apologising for any inconvenience.
Officials urged supporters to watch the match indoors in air-conditioned spaces and avoid prolonged exposure to the heat.
Large parts of Spain are experiencing unusually high temperatures for June as a mass of hot air from North Africa moves across the Iberian Peninsula.
A total of 13 of Spain’s 17 regions are on orange alert for heat on Sunday, while the northern Basque Country bordering France is on red alert, the highest level.
Authorities advised residents and visitors to take precautions during the heatwave, including drinking water regularly, staying in cool environments, limiting outdoor physical activity during the hottest hours of the day and taking extra care of vulnerable people. AFP
Can Saudi Arabia repeat the magic of 2022?
Argentina arrived in Qatar on a 36-game unbeaten run. When Lionel Messi opened the scoring from the penalty spot after 10 minutes, a comfortable afternoon seemed in the offing. Saleh al-Shehri and Salem al-Dawsari had other ideas, Argentina had three goals disallowed for offside in the space of 13 minutes and the greatest comeback in Saudi Arabia football history was made. Argentina went on to lift the trophy, while defeats to Poland and Mexico meant the Saudis did not reach the knock-out stage.
Unai Simon over David Raya is a controversial choice for De la Fuentes. The Arsenal keeper could lay claim to being Europe’s best this season.
“Those at the Champions League final had a few more days, so I got there on the Wednesday night,” Raya says. “I arrived a bit before Fabián [Ruiz]. I was saying hello to some of the others in reception when he arrived. I went to say congratulations; that was almost the first thing I did. I couldn’t really talk [to him] after the final; I just didn’t have it in me. The next day we talked about the game properly. Just two mates chatting … I was happy for him that he could lift the trophy for a second time.”
A high pressure game for the European champions, as Sid Lowe reports.
“If we had scored one, the game would have changed,” Martín Zubimendi said. Immediately after the game, De la Fuente had offered a simple analysis: when the ball doesn’t want to go in it doesn’t want to go in, he insisted. Spain had racked up 27 shots, after all. Ferran Torres had hit the bar and seen another clear opportunity saved. Vozinha, the 40-year-old goalkeeper who stopped that, saved six more and was named the man of the match. “There’s nothing to reproach the team for,” Rodri said. “We generated chances but couldn’t put it away; the good thing is they created almost nothing.”
We wait to see what role Lamine Yamal will play today. His coach would surely like to be able to use him.
The worst mistake we could make would be to compare him to anyone. He is the midst of a process. He has exceptional footballing maturity and lives it all with total naturalness. He has great serenity and strength. We have to let him follow his path but those players who have something different are ready for that. They’re geniuses, like Dalí [who] can paint a picture, or Michelangelo. They’re different. What is exceptional to us, isn’t to them. In those extremes, they feel comfortable. Why? Because they are different. What we think is exceptional, they consider normal.
Preamble
Spain’s campaign did not get off to a flying start, and Luis de la Fuentes may wake up in the night to visions of Cape Verde’s Vozinha. He will have Georgia on his mind ever since Monday. Saudi Arabia are no pushovers and gave Uruguay a scare in their opening match. Memories of downing Argentina four years ago still abound, and so Spain might beware. They can ill afford to go into the final game with Uruguay at a disadvantage. All eyes on Lamine Yamal, whose fitness situation remains opaque, though Spain need their other forwards to come to the party.
Kick-off 5pm UK, 1pm ET, 2am AEST. Join me.
A topless man can be seen driving erratically in Edinburgh before abandoning his car and attacking a black man and a delivery rider.
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